Being able to leverage historic tax credits was the driving force that ultimately terminated the purchase option for Danville’s iconic White Mill property, paving the way for a partnership to revitalized the 100-year-old structure.
The Alexander Company and the Danville Industrial Development Authority signed a memorandum of understanding during a ceremony Monday at the Danville Family YMCA across the Dan River from the White Mill.
“The option contemplated such a partnership agreement,” said Dave Vos, development project manager for The Alexander Company, which is based in Madison, Wisconsin. “The termination of the option is the result of this desired framework being agreed to in the MOU.”
Entering into the partnership — instead of having the company buy the property outright — allows the use of historic tax credits for the project.
“Retaining the existing partnership protects the historic tax transition rule benefits of the Tax Cuts and Jobs Act of 2017 that would no longer be available as a result of the sale of the property,” Vos said.
The act, passed under former President Donald Trump, eliminated the 10% rehabilitation credit for buildings constructed before 1936. However, a transition rule allows owners of a certified historic structure or a pre-1936 building to use the prior tax credit if they owned or leased the building on Jan. 1, 2018 and at all times thereafter, according to the IRS website.
The White Mill structure, currently about 600,000 to 700,000 square feet, was built in 1920 and was once part of a sprawling Dan River Inc. textile operation.
In January 2019, the IDA, which is the city’s land-buying arm, approved an agreement with The Alexander Company for an option to buy the property for $3 million. The White Mill became one of about 70 properties owned by the Danville Industrial Development Authority in 2017. The quasi-government group purchased the building and surrounding properties when Danville City Council voted to give it the $3 million purchase price.
Plans for the $62.5 million joint commercial and residential venture — under 424 Memorial Drive LLC — were announced at the Monday morning event.
The project will include 110,000 square feet of commercial space, 150 apartment units (with an additional 100 units in the future) and 219 interior parking spaces.
Under the partnership, 424 Memorial Drive LLC will retain control of the property, Vos said. The White Mill building will be divided into three individually-controlled portions through a condominium structure.
The IDA owns the White Mill property, but the authority agreed to admit the Alexander Company into the ownership structure as part of the memorandum of understanding, said Danville Economic Development Director Corrie T. Bobe.
Alexander Company will lease Phase I of the residential portion of the project from 424 Memorial Drive LLC and the IDA will lease the commercial part, Bobe said.
Phase II of the residential portion (the additional 100 apartment units) will remain unleased until a future date, Bobe said.
“All leases will be with the ownership entity for this building [424 Memorial Drive LLC],” Bobe said. “Terms of this lease structure will be finalized towards the fourth quarter of this year once the financing has closed.”
The IDA will receive income from the commercial tenants and an additional 25% of the project’s stabilized cash-flow, Bobe said.
Site Collaborative, an architectural firm in Raleigh, North Carolina, designing a planned nearby riverfront park, will perform the site design for the project.
The apartments will come in 1-, 2- or 3-bedroom units for rent, Vos said, with 1-bedroom units renting for between $840 and $980 a month, and the 2- and 3-bedroom apartments will rent for $1,000 to $1,200 and $1,170 to $1,490, respectively, Vos said.
Vos said 25% of the apartments would be set aside to make housing available for individuals and families earning between $30,000 and $50,000 a year.
The Alexander Company will guarantee completion of the project, and with its investors, contribute about $24.6 million of equity and $17.9 million of financing, for a total of about $42.5 million, Vos said.
The IDA will borrow $20 million, $5 million of which will be forgivable debt, Vos said. The authority will be responsible for site improvements related to surface parking for the commercial part of the project, Vos said.
“Compared to a traditional loan structure where principal and interest must be repaid over a certain period of time, all or a portion of a forgivable loan will not have to be repaid,” Bobe said.
The IDA will pursue New Markets tax credits as a way to finance the development of the commercial part of the project, Bobe said.
The New Markets tax credit program attracts private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax, according to the U.S. Department of Treasury web site.
As for The Alexander Company’s portion of the project, a mortgage will be taken out, “but the terms won’t be solidified until approximately 30 days prior to closing,” Vos said.
Numerous other agreements and contracts are being prepared for the project and will be carried out when financing is closed and partners admitted in the fourth quarter of this year, Vos said.
Plans also include restoration of the covered bridge that spans the Dan River from the north side of the White Mill to the former Long Mill site.
The bridge will be for pedestrians and will connect the north and south sides of the Riverwalk Trail. The IDA will use grants for asbestos and lead abatement and removal of the bridge’s metal panels, a news release from the city stated.
And there are plans to use the canal on the south side of the building as a whitewater feature and to provide about 1.12 acres fronting the Dan River for an extension of the Riverwalk Trail.
Vos said construction should begin the fourth quarter of this year, and completion is projected by summer 2023, around the same time as the Caesars Virginia casino resort project at the former Dan River Inc. site in Schoolfield.
The Alexander Company and Peninsula Pacific Entertainment pushed for a casino project at the site last year. The city instead selected Caesars Entertainment’s plans to bring a casino to another former Dan River Inc. site at Schoolfield.